Securities Transaction Tax (STT): Latest Updates, New F&O Rates, Impact of F&O Hike

Securities Transaction Tax (STT) is a direct tax levied on every purchase and sale of securities listed on the stock exchange in India. It is collected at source by the exchange to ensure tax compliance and curb excessive market speculation ensuring transparency. 

As proposed in Budget 2026, with effective from April 1, 2026 the STT rates have been hiked to 0.05% on futures and 0.15% on options.  These changes are focused at curbing excessive speculation in Future & Options segment and expected to increase trading cost for active investors as well as traders.  

Features of Securities Transaction Tax

STT is a straightforward direct tax that is simple to compute and impose. Some of STT's most distinguishing characteristics are given below.

1. An STT charge is applied on all sell transactions for options and futures.
2. For the purposes of STT computation, each ‘futures’ trade is valued at the actual traded price, whereas each option trade is valued at the premium.
3. The amount of STT that a clearing member must pay is the aggregate of all STT taxes owed by trading members under him.

Securities Transaction Tax Rate in India

* Please refer Rule 3 of Securities Transaction Tax Rules, 2004 for the manner of determining value of taxable equity or Equity oriented mutual fund transactions.

STT Calculation Example

1. STT on Futures

The appropriate STT for futures and options is 0.05% and 0.15% respectively. If you sell 1 lot of future contracts at a price of Rs. 5,00,000:

STT = 0.05%*5,00,000 = Rs. 250.

2. STT on Equity Delivery

If you buy 500 shares at Rs. 100 per share on 2nd April 2026 and sell 500 shares at Rs. 150 per share on 20th March 2026, The STT on equity delivery will be calculated as follows:

STT (BUY) = 500*100*0.1% = Rs. 50

STT (SELL) = 500*150*0.1% = Rs. 75

The STT on options will be calculated as follows:

3. STT on the intrinsic value of exercised option

If the lot size is 65, strike price at Rs. 20,000 and spot price at Rs. 20,100

The intrinsic value for 1 lot will be (Rs. 20,100 - Rs. 20,000)*65 = Rs. 6,500

The STT on intrinsic value will be Rs. 6,500*0.15% = Rs. 9.75.

4. STT on option premium

If the lot size is 65, strike price at Rs. 20,000 and the premium is Rs. 50

The total premium received will be Rs. 50*65 units = Rs. 3,250

The STT on premium will be Rs. 3,250*0.15% = Rs. 4.875

STT Applicablility

While the term ‘securities’ is not defined under the STT Act, the STT Act specifically allows borrowing of the definition of such terms not defined in the STT Act but defined in the Securities Contracts (Regulation) Act, 1956 or Income-tax Act, 1961. The term ‘Securities’ is defined in the Securities Contracts (Regulation) Act and includes the following:

1. Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporates.
2. Derivatives.
3. Units or any other instrument issued by any collective investment scheme to the investors in such schemes.
4. Government securities of equity nature.
5. Equity-oriented units of mutual funds.
6. Rights or interest in securities.
7. Securitised debt instruments.

Hence, securities include all of the above and are traded on the recognized stock exchange for the purpose of STT levy. Off-market transactions are out of the purview of STT.

Benefits of STT

The benefits of STT are discussed below:

1. Prevents Tax evasion: STT is similar to Tax Collected at Source (TCS). It wil let the government to keep track of the transactions on stock exchange and curb tax evasion.

2. Discourage speculative trading: As STT is the additional cost while making sell or purchase transaction on securities, the traders decreases the speculative trading due the increased cost of STT. This results in less market volatility and beneficial to investors.

Impact of STT on Investors and Traders

The securities Transaction Tax (STT) impacts the investors and traders in the following manner:

1. Increased Cost of Transaction-  As STT is the additional cost levied on buying and selling of securities, it increases the cost of traded securities. Also, when the volume of transactions is large, the STT cost becomes significantly greater and affects the overall profitability of the investors.
2. Reduced Trading Volumes: To some traders, the additional cost of STT may discourage them from investors investing in smaller volumes due to the increased cost and hence resulting in decrease of liquidity.
3. Shift in Trading Strategies: The investors may change their trading strategies to take the advantage of the securities where STT rates are lower.
4. Impact on Mutual Fund Investors: The impact of STT on mutual fund investors are low but it decreases the Net Asset Value (NAV) of the funds. This leads to reduction in profits to investors.

When is Securities Transaction Tax Levied?

1. Each purchase and sale of shares listed on a domestic and recognised stock market is subject to a securities transaction tax. The government determines the taxation rate. 
2. Under the STT act, all stock market transactions involving equities or equity derivatives such as futures and options are subject to taxation. 
3. When a share transaction is completed, STT is levied. As a result, STT is quick, transparent, and effective. 
4. Because the tax is imposed as soon as the transaction occurs, incidents of non-payment, incorrect payment, and so on are minimised to a bare minimum. 
5. However, the net effect is that it raises the cost of the transactions.

STT on Physical Delivery of Derivatives

1. Derivative contracts are generally settled in cash, which means, stocks are not physically delivered, and only the profits are paid and received by the contracting parties. 
2. These transactions, as given in the table above, are subject to an STT levy of 0.001 per cent. 
3. However, SEBI had in its Circular dated 11.4.2018 listed around 46 stocks, in respect of which derivative contracts would be settled by way of physical delivery of shares as against cash.  
4. As per a CBDT clarification, the delivery based derivatives are charged STT similar to equity instruments as they both are settled by physical delivery of shares.

Securities Transaction Tax and Income Tax

1. Tax on Capital Gains

• As per income tax law, any capital gain on the sale of shares or equity-oriented mutual fund units (EOMF) which are subject to STT is taxed at beneficial or Nil rate.
• The tax rate on short term gains on such securities is 20%. 
• This long term capital gain tax rate on sale of shares on which STT paid is 12.5%.

2. Tax on Business Income

If a person is trading in securities and offering income or loss from such trading as business income, STT paid is allowed to be deducted as business expense.

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